Insurance Linked Securities (ILS) is an area of rapidly growing importance to reinsurance markets globally. Without reinsurance, the insurance industry would find it impossible to remain solvent for long. This has provided the impetus for long-term risk takers to benefit, by helping those with shorter horizons.
The direct transfer of reinsurance risk to capital markets began in the wake of the hurricane Andrew in 1992. After Andrew, premiums paid by insurers for reinsurance were high. But the demand for reinsurance outstripped the capacity of reinsurers’ balance sheets. This prompted them to look for new sources of underwriting capacity in capital markets and resulted in the creation of the ILS market.
Nearly 30 years later, the ILS market, backed by institutional investors has grown to represent around one-third of the reinsurance industry.
As the ILS industry has grown over that time, we have seen it morph and adapt to the needs of the reinsurance industry. At Convergence, we also see the importance for the the industry to better understand the needs and expectations of institutional investors.
As Convergence’s Principals include experience as both ILS investors and managers, we are able to work with clients to achieve advantageous outcomes from both perspectives.
As investors, we can see how ILS can fit within a long-term strategic portfolio, as well as being used tactically and for generating alpha.